Amazon becomes latest target in Europe's 'sweetheart' tax probe

Amazon's operations in Luxembourg appear to be the next target for Europe's crackdown on countries that offer favourable tax arrangements to encourage multinationals to set up there.

According to reports, Amazon has now become the latest subject of an investigation announced last month by Europe's competition commission. In June, it began a probe into whether Apple's low rate of tax in Ireland violates European state aid rules.

The EC opened parallel investigations into tax arrangements offered to Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg.

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Competition chief Joaquín Almunia suspects the countries' tax rulings don't comply with Europe's state aid laws and that the companies' selective tax advantages could give them an unfair advantage that could end up distorting competition on the continent.

The investigations will examine the countries' tax rulings in relation to the three companies, rather than the companies themselves. However, as the Financial Times reported on Friday, the companies could foot the bill if the EC find against the countries in question, potentially having to repay tax revenues lost to illegal so-called "sweetheart" deals.

A spokesman from Almunia's office would not confirm whether its probe had been widened to include Amazon.

"As we have said publicly many times before, the Commission continues to gather information about certain tax practices in several member states, in order to assess the situation from the point of view of EU state aid rules," the spokesman said in a statement.

"It is in any event entirely premature to speculate on whether new investigations could target this or that specific company in the future. At the moment we have three ongoing investigations which relate to tax rulings concerning Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg."

Ahead of the investigation, the European Commission's High Level Expert Group on Taxation of the Digital Economy recommended Europe overhaul its transfer pricing rules which allow companies to shift profits from higher tax countries to lower-tax countries.

Specifically, Almunia said he was looking into the practice of reducing declared profits by through the prices charged for commercial transactions between entities which are part of the same corporate group.

Amazon had not responded to a request for comment at the time of publishing.